RBC says the economy likely grew by 0.2% for July, slightly above Statistics Canada’s early estimate of 0.1%, and broke a three-month streak of declines
Canada’s economy could be set for some encouraging news this week, with RBC Economics analysis predicting a modest rebound after a weak second quarter. GDP likely grew by 0.2% for the month, slightly above Statistics Canada’s early estimate of 0.1% and breaking a three-month streak of declines.
RBC said export and manufacturing volumes likely both bounced back, with exports up 0.7% and manufacturing sales climbing 1.6% following sharp declines in Q2. Alberta’s oil production also continued its recovery from May’s wildfire disruptions, providing a further boost to the national tally.
Wholesale activity extended its winning streak, rising 0.8% from June and 3% year over year, while home resales jumped nearly 4%. RBC flagged that the August advance estimate for retail pointed to a 1% rebound, suggesting consumer activity remained on a “modestly positive” trajectory.
However, not all indicators were upbeat. Employment dropped by 41,000 in July, though hours worked fell by just 0.2% and remained above Q2 averages through August.
Meanwhile, the Bank of Canada’s next moves are under scrutiny. Policymakers cut the overnight rate for the first time since March in September, but further reductions are likely to hinge on incoming data.
“Unless there is a drastic turnaround in softening employment trends and easing core inflation in September, we think the likelihood for another cut in the October meeting is high,” Claire Fan, senior economist at RBC, previously said.
Market watchers are split on how quickly the central bank will act. “Our tracking for GDP growth in early Q3 is not significantly different than the BoC’s, but the decision to cut again (or not) in October will depend heavily on early October trade and labour market data, as well as the results from the BoC’s Business Outlook Survey," RBC said.
South of the border, US personal spending was expected to edge up by 0.5% in August, with income growth slowing to 0.3%. These trends, coupled with stagnant wage growth and mixed signals from the auto and retail sectors, could influence Canadian economic sentiment and, by extension, mortgage market dynamics.
“Depending on which part of the yield curve you look at, yields are at their lowest level now in months. And some of that’s going to filter through, I believe in longer-term mortgages – it’s not just the variable rates that may be affected by this,” BMO chief economist Doug Porter told Canadian Mortgage Professional.
“So I do think it will add some support to the market. A quarter point isn’t going to be a game changer, but I think it’s a move in the right direction for sure.”
